What Are the Best Policies to Promote Ag-Related R&D? Robert L. - - PowerPoint PPT Presentation

What Are the Best Policies to Promote Ag-Related R&D?

Robert L. Thompson

Gardner Endowed Chair in Agricultural Economics University of Illinois at Urbana-Champaign September 24, 2007

Projected World Food Demand

• World food demand could double by 2050

– 50% increase from world population growth from 6 to 9 billion – all in developing countries – 50% increase from broad-based economic growth in low income countries

• How many presently low income consumers

are lifted out of poverty will be the most important determinant of the future global demand for food.

• The World Bank estimates that the number
• f people in developing countries living in

households with incomes above $16,000 per year will rise from 352 million in 2000 to 2.1 billion by 2030.

Growing Demands on Forests, Too

• The same forces of population and income

growth that increase demand for food also increase demand for things made out of wood, e.g. paper, furniture, building materials; poles.

• In rich countries, growing demand for

environmental amenities and preservation

• f (especially old-growth) forested areas.
• Now biofuels production is claiming more

and more land to grow feedstocks.

The Land Constraint

• There is at most 12% more arable land available

that isn’t presently forested or subject to erosion

• r desertification – and degradation of many

soils continues.

• The area of land in farm production could be

doubled…

• But only by massive destruction of forests and

loss of wildlife habitat, biodiversity and carbon sequestration capacity

• The only environmentally sustainable alternative

is to at least double productivity on the fertile, non-erodible soils already in crop production.

Water A Growing Constraint

• Farmers use 70% of the fresh water used in the
• world. They are both the largest users and the

largest wasters of water.

• Water is priced at zero to most farmers,

signaling that it is much more abundant than in

• reality. Anything priced at zero will be wasted.
• With rapid urbanization, cities are likely to outbid

agriculture for available water.

• The world’s farmers need to double food

production using less water than today. Biofuels will add further to this challenge.

Research Investment Essential

• Since Malthus, prophets of doom have argued

population growth will increase food demand faster than agricultural production can grow.

• Public and private sector investments in

agricultural research have increased productivity faster than demand growth, with resulting 150 year downward trend in real price of grains.

• Need to more than double world ag production

using less water and little more land than today.

• Future world market price trend will depend on

whether research increases land and water productivity faster than world demand grows.

Larger Fraction of World Ag Production to Move Through Trade

• The world’s arable land and fresh water are not

distributed around in the world in the same proportions as is population.

– No way for Asia or Middle East to be self-sufficient in food

• With population growth, urbanization and broad-

based economic development, many LDCs’ food consumption to outstrip their production capacity and they will become larger net importers.

• Efficient producers of animal products, grains

and oilseeds, wherever they are, will benefit.

The World’s Arable Land (left) Is Distributed Very Differently than Its Population (right)

South Asia 15% Middle East and North Africa 4% Latin America and Caribbean 10% Europe and Central Asia 20% East Asia and the Pacific 14% Africa 11% OECD Countries 26% OECD Countries 14% South Asia 22% Latin America and Caribbean 9% Middle East and North Africa 5% Europe and Central Asia 8% East Asia and the Pacific 31% Africa 11%

Exports Are Critical to Ag Profitability

• American agriculture exports the production of
• ne out of three acres of cropland. These

exports generate 1/4 of farm sales revenue.

• In 2006 U.S. ag exports totaled $68 billion:

– Grains & oilseeds $28.4 billion – Horticultural products $16.7 billion – Animal protein $13.2 billion – Cotton $ 4.9 billion

• Most important markets:

– Canada 18% – Mexico 16.5% – Japan 12% – China 11% – E.U. 10%

U.S. Ag Competitiveness

• Fertile soils and favorable climatic

conditions are fundamental, but…

• Investments in productivity-enhancing ag

research by the public and private sectors and in infrastructure that reduces cost of transport are at least as important.

U.S. Role in World Trade (2002-05)

Commodity % of World Production % of World Trade % of Prodn Exported Cotton 20 40 70 Corn 40 60 18 Soybeans 38 44 35 Wheat 9 25 50 Rice 2 13 52

Source: Congressional Research Service

U.S. Farm Policy Is Much More than Price & Income Support

• U.S. farm policy is much more than commodity

price & income support programs

• When Congress passes agricultural legislation

(“farm bills”), it authorizes USDA programs, but nothing happens unless Congress annually appropriates funds for each program.

• 93% of farm program payments go to growers of

5 commodities, and 2/3 of U.S. agriculture receives no commodity support payments, but most is affected by some USDA program(s).

USDA Expenditures, 2005

Program $ billions

Farm Commodity Programs 39.6 Foreign Programs 5.3 Rural Development 14.3 Food and Nutrition 51.0 Food Safety 0.9 Natural Resources & Environment 8.7 Marketing & Regulation 1.8 Research, Education & Economics 2.7 USDA administrative overhead & other 0.5 Total 124.9

The Current Farm Policy Landscape

• Many farm groups happy with 2002 Farm Bill.
• Rapid growth of ethanol industry with resulting

increase in crop prices

– There’s more interest today in ethanol than exports. – There’s little for corn, soybeans, or wheat in extending 2002 Farm Bill.

• Significant reduction in CBO’s budget baseline

for ag commodity programs

– Direct payments and research budget are seen by many farm organizations as place to raid to cover cost of increasing price and income supports

Current Policy Environment (continued)

• WTO trade negotiations and threat of

more litigation in WTO continue.

• Unprecedented anti-farm program editorial

comment in media across the country

• Numerous groups have proposed

alternatives to present farm programs, including Bush Administration

Two Fundamental Philosophical Questions in Writing 2007 Farm Bill

• Of the Federal dollars allocated to agriculture

and rural America, how much should go to farmers as individuals & how much should be invested for the greater good of agriculture and rural America?

– E.g., agricultural research & rural infrastructure

• Of the fraction that goes to farmers as

individuals, how much should be linked to the production of specific commodities & how much should be decoupled from what the farmer produces?

U.S. Ag Productivity Growth Success Story

• In 2002, U.S. farm output was 2.6 times larger

than what it was in 1948.

• It was produced with fewer total inputs than were

used in 1948!

• This was a much higher productivity growth rate

than in the rest of the U.S. economy!

• The estimated annual real rate of return on

public investments in agricultural research is in the range of 30-60 percent – one of the highest payoff investments in the American economy!

Public vs. Private Ag Research

• Historically public support of biological research

key to agricultural development (“public good”)

• Private sector did most of the mechanical,

pesticide & animal pharmaceutical research (could patent resulting intellectual property)

• Private sector role in biological ag research only

took off after late 1970s when Congress reduced appropriations for research and encouraged the private sector to take on this role.

• Private investment in ag research is now more

than twice as large as public investment.

Need Both Public & Private Agricultural Research

• There are many areas of research in which the

private sector will invest less than the social

• ptimum, such as:

– Basic research: Payoff is too uncertain and too far in the future – Where hard to protect intellectual property, e.g. open- pollinated varieties – Where no market exists, e.g. conservation and public policy

• Universities must be involved to produce

credible PhD researchers for the private sector to hire.

Public and private sector investments in R&D

500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 5,000

1 9 7 1 9 7 2 1 9 7 4 1 9 7 6 1 9 7 8 1 9 8 1 9 8 2 1 9 8 4 1 9 8 6 1 9 8 8 1 9 9 1 9 9 2 1 9 9 4 1 9 9 6 1 9 9 8 2 2 2 2 4

Public R&D Private R&D

Million 2000 $

U.S. Ag Research Issues

• Balance between public and private investments

in agricultural research

– Level of public funding more important than how we structure administration of the funds!

• Balance between formula funds and competitive

grants

• USDA research grants inadequate relative to

NSF & NIH (too few dollars & too short duration)

• Earmarking
• Indirect cost recovery (overhead) rate

Other U.S. Research Issues

• How efficient is our present Federal ag

research system?

– How many Land-Grant Universities and ARS labs are needed? ARS – Land-Grant balance?

• What role agricultural extension in the

future for agricultural tech. transfer?

• How to attract more bright young

Americans into ag sciences? Need immigration reform to allow more foreign Ph.D. students to stay in the U.S.

International Ag Research

• Under-funding by national governments,

foreign aid programs and World Bank.

– Agriculture has been off the international development agenda – Nutritional deficiency diseases have been off the international health agenda